Homebuilders switch gears, look to starter homes

Begin move away from luxury homes

May 11, 2017

Kelsey RamírezAs Millennials increase their share in the housing market, homebuilders are switching gears from the luxury market, which they focused on the past several years, to starter homes, according to an article by Laura Kusisto and Chris Kirkham for The Wall Street Journal.

Nearly all major builders are making this shift as Millennials, the newest generation of homebuyers who were born from the early 1980s to mid 1990s, increase their presence in the market, according to the article.

“There’s an increasing confidence level in that part of the market,” said Gregg Nelson, co-founder of California home builder Trumark Cos. “The recovery is finally starting to take hold in a broader way.”

While the share of first-time buyers fell to a 30-year low in 2015 of 32%, that number increased in 2016 to 35%, according to the article. The historic average of the share of first-time buyers sets a bit higher at 40%.

The housing recovery has been divided, as the luxury market has soared in recent years while the more affordable end of the market has struggled to make up for lost ground. Tough lending standards, slow wage growth, growing student-debt obligations and a newfound fear of ownership have combined to crimp demand among millennials in particular. The return of the starter-home market means the housing bifurcation is finally starting to narrow.